Recommended Updates to Risk Appetite

10 Nov 2021
How the Global Fund manages risk in a time of great uncertainty


As the context section of the Update’s executive summary explains: ‘The COVID-19 pandemic has had a significant impact on the Global Fund’s operating environment, causing widespread disruption. Risk levels are significantly higher, implementing mitigating actions will take time, and for those risks where the Global Fund has less influence, higher risk levels may need to be accepted for longer as we allow time for mitigating actions to take effect. The Global Fund’s risk appetite needs to reflect this new reality whilst also facilitating future decision-making and intelligent risk-taking.’

Therefore, at the 46th Board Meeting, a paper was presented with amendments for Board approval to certain risk appetite statements, including risk appetites, target risk levels, and timeframes to achieve target risk.  The executive summary contains an outline of the five-step approach adopted by the Secretariat to develop the recommendations on risk appetite adjustments.

The source of information for this article is the documents for the Board meeting held on 8-10 November 2021, constituencies’ feedback, and Board discussions.

Risk categories

By way of background for our Global Fund Observer readers, here is the list of the eleven risk category names (taken from Annex 1 of the paper) that are currently in use in the Secretariat:

  1. Program quality – HIV
  2. Program quality – TB
  3. Program quality – Malaria
  4. Monitoring and evaluation
  5. Procurement
  6. In-country supply chain
  7. Grant-related fraud and fiduciary
  8. Accounting and financial reporting by countries
  9. In-country governance
  10. Quality of health products
  11. Foreign exchange


Recommended increases in risk appetite and target level timeframes

Increases in risk appetite were requested for four out of these eleven grant-facing risks – No. 2 from high to very high and Nos. 5, 7, and 8 from medium to high – to reflect the fact that increases in inherent risk levels mean that these risks are already outside risk appetite, and to ensure program continuity. The Secretariat expects the increase in risk appetite for risks 5, 7, and 8 to be short-lived and revert to the original levels by December 2022.

Extensions of timeframes for reaching target risk levels were requested for five out of the eleven risks - Program quality HIV by 12 months to June 2024, Program quality TB by 24 months to June 2025, and Program quality malaria by 12 months to June 2024 to reflect the time it will take to implement priority adaptations and regain lost ground; M&E by 18 months to December 2022 to reflect the time it will take to respond to evolved M&E needs and expectations around recency and use of data, and the in-country supply chain risk by 12 months to June 2024 to reflect delays in implementing key supply chain strengthening initiatives.

Target timeframes were also proposed for reaching target risk levels for procurement and the financial and fiduciary risks. These risks have not previously had target timeframes because they were within risk appetite and at the target risk level. The timeframes reflect the fact that risk levels are expected to return to pre-COVID levels within 12 to 18 months, assuming COVID-related disruptions start to subside within a similar timeframe.

No changes to risk appetite statements were proposed for three out of the eleven risks: In-country governance, quality of health products, and foreign exchange.

The paper notes that the Audit and Finance Committee (AFC) and the Strategy Committee (SC) acknowledged the need to temporarily increase risk appetite for certain risks and/or extend the timeframe for reaching target risk levels. It was noted that any acceptance of increased risk needs to come with clear accountability and for a clearly defined period. The Committees highlighted the importance of striking the right balance between risk mitigation and avoiding adverse impacts on program delivery. The Committees also noted the importance of in-country missions and of country-level engagement in risk management.

To support the proposed amendments, a full description is provided of the risk appetite concepts and the approach to assessing the risk appetite adjustments. Then there is an analysis of each of ten of the risk areas, each of which explains the inherent risk level, mitigating measures, and risk appetite recommendation.  There is no mention of foreign exchange risk.

Operationalization of risk appetite

This is followed by an explanation of how risk appetite is operationalized. Increasing risk appetite and/or extending target risk timeframes ensures that the organization has the flexibility it needs to make intelligent risk-reward trade-off decisions. It enables more active risk-taking in contexts where the potential for a positive programmatic outcome outweighs the risk of a negative one. However, every decision is taken on a case-by-case basis taking into account the country context, the likelihood of proposed adaptations and mitigations being successful, the risk trade-offs, and the potential for the risk trade-offs to be successfully mitigated.

The Portfolio Performance Committee (PPC) and the COVID-19 Response Mechanism (C19RM) Investment Committee are the primary forums for decision-making on country-level risk trade-offs. Decisions are made on a country-by-country basis through a combination of full and executive sessions. The PPC meets frequently and provides ongoing oversight of grant and country portfolio risk. It provides organizational sign-off on risk mitigation strategies including any risk trade-offs and ensures clear accountability for implementation and decision-making. The PPC routinely follows up on the implementation of mitigating actions to monitor the ongoing impact of inherent risk levels and mitigating actions on the organizational risk profile relative to risk appetite.

Any risk trade-off decision by the PPC involves an assessment of the mitigating actions being put in place to reduce the likelihood and impact of additional risk resulting from a risk trade-off decision. The existence of appropriately tailored and effective mitigating actions that minimize the risk of a negative outcome is a prerequisite for PPC acceptance of any additional risk. All policy and procedural exceptions are approved by relevant governance mechanisms. Three risk trade-off studies are presented in Annex 2 and examples of prioritized program adaptations and risk trade-off analysis are set out in Annex 3.

Assurance activities provide visibility of the extent to which risks are materializing. All high-impact and core portfolios undertake a comprehensive risk assessment and prioritize a set of key mitigating actions. Based on the risk drivers and planned actions, Local Fund Agent (LFA) assurance activities are tailored accordingly. With additional investments under C19RM, new health product categories, and interventions, LFA assurance activities have been further strengthened to provide increased visibility on the risks and effectiveness of various mitigating actions. The scope of audits and of fiduciary and fiscal agents, where present, is also being enhanced to respond to changes in the operating context. In response to the expansion of C19RM, a suite of mandatory assurances has been introduced for the 45 portfolios that account for approximately 90% of the C19RM investment envelope. Mandatory assurance activities focus on higher risk areas through targeted programmatic and financial / PSM reviews and other spot checks. A new centralized Supply Chain and Health Services Spot Check is also being rolled out in the fourth quarter of 2021 for the same 45 countries focused on providing increased visibility and assurance in relation to health product and service availability and disruption at the facility level. In addition, risk-based LFA-led assurance activities are also built into expanded LFA budgets for all portfolios.

Strengthening monitoring and oversight of HIV, TB, and malaria (HTM) and C19RM grant implementation has been a priority in 2021. The C19RM monitoring and oversight workstream is being used as an entry point for strengthened oversight of C19RM 2021 investments but it will also be used to track disruptions to HTM programs, implementation of HTM adaptations, and the impact on programmatic performance.

The Board approved the risk appetite amendments, and it and its Committees will continue to receive updates on risk levels and progress towards target risk levels.

Stakeholder feedback on the risk appetite update

The proposed changes were largely deemed to be acceptable

The constituencies had consistently highlighted the importance of appropriate risk level, following the Office of the Inspector General (OIG) review of grant performance in West and Central Africa, OIG recommendations, and SR2020 recommendations on the need for the Global Fund to strike the right balance between program level and fiduciary risk. They also recommended that the Fund look critically into whether its financial risk mitigation measures work efficiently.

Improved program efficiency, more quality interventions, more lives saved, and new infections averted were of paramount importance. As the COVID-19 flexibilities seem to demonstrate, consideration should be given for an increase of some risk levels or an extension of time to reach the appropriate risk level while, of course, ensuring that Global Fund resources are safeguarded and not placed at greater risk.

All stakeholders recognized the increasingly volatile risk environment linked to COVID-19 and welcomed the proactive work of the Secretariat in addressing risk management. They supported the work of the PPC and Investment Committee in providing HTM and C19RM grant oversight and country implementation. Good progress had been made in adapting the risk management framework and mitigating the impacts of the pandemic. They supported the suggestion that the Board should receive greater reporting on emerging risk trends and the effectiveness and results of assurance measures, including the additional assurances put in place.

Hence, stakeholders found the five-step approach to develop recommendations on risk appetite adjustments well-defined and especially welcomed the prioritization of interventions and mitigating measures on a country-by-country basis for all countries in the risk appetite cohort

In general, most felt the proposed changes and new timeframes were well developed and justified.

Some stakeholders also raised a number of concerns

While recognizing the need to increase risk appetite for four grant-facing risks, some stakeholders found it unclear how this would translate into country-level decisions, and how the increased level of risk will be shared between the Secretariat and countries/implementers/ Principal Recipients (PRs) and Sub-Recipients. Tightened monitoring and reporting systems are important but must also be adequately resourced in order that capacity is not overwhelmed and stretched too thinly. This is as true at the Secretariat level, as it is at the country and community level.

Some stakeholders wanted to know the extent to which countries, Country Coordinating Mechanisms (CCMs), PRs and implementing partners, communities, civil society, and all other key in-country stakeholders, had been involved in identifying these options. To be most effective, they recommended the development of a plan for informing and engaging CCMs and other key in-country stakeholders to establish appropriate lines of communication on the risk appetite and to ensure shared understanding, engagement, and support for the updated risk appetite and target risk levels by such vital in-country stakeholders.

The significant direct, indirect, and knock-on impacts of COVID-19 on HTM, health and community systems, and the rapidly shrinking fiscal space of implementing country governments has rendered issues of sustainability, transition, co-financing (STC), and domestic resource mobilization increasingly tenuous and pose heightened risks to the Global Fund model and mission. It has been three years since the framework was developed and Board-approved. Given the rapidly changing context in which practitioners work, they felt it was time to revisit the framework with a view to renewing discussions as to whether STC should be included in a revised framework.

Many would like to better understand how success for increased risk appetite would be measured. Another recommendation was for the development of specific parameters and criteria to internally evaluate the future impact of this decision to increase risk appetite for each specific risk area. A clear monitoring framework would allow for more systematic and coordinated learning.

At the same time, others wanted more clarity on the proposed timeframes for the procurement and fiduciary and financial risks, especially the basis of the assumptions on COVID-related disruption.

Foreseen mitigation actions

Stakeholders wanted clarification on how the Global Fund would ensure that in-country structures continue to be strengthened in the long-term while parallel procurement and supply chain systems are being used in the short term. Secondly, the paper illustrated that many additional assurance mechanisms were foreseen to address the increased fraud risks due to the virtual work environment and the high influx of money through the C19RM. It is welcome that this is being addressed.  However, in general, stakeholders were concerned that the staff capacity deployed on the C19RM was not balanced with regard to capacity needs for core Global Fund activities.  In particular, stakeholders wanted reassurance that programs regarding health system strengthening, and human rights and gender, are given full support

Regarding increased risks, the Global Fund was urged to move back to in-country visits as soon as possible and seek close cooperation with actors that maintain an in-country presence, to ensure the necessary assurances on program quality and the use of Global Fund support.

An amendment to the decision-point was requested

New and bolstered controls and assurances will be implemented, but because they have not yet been initiated, it is unclear whether they are the right controls or will be sufficient as COVID-19 continues to change operating environments. If the Board agrees to support increases in risk appetite, the Board should also be provided greater country-level reporting and transparency around emerging risks and the effectiveness and results of the assurance measures, including the additional assurances put in place. Recognizing that risks will still be considered at the country level on an individual country basis, it is unclear how increasing aggregate risk appetite will translate into changes at the country level in terms of program delivery or program oversight. How will the trade-offs be decided? How many countries does the Secretariat anticipate will require an increased risk appetite? If risk is expected to return to baseline levels by the end of next year, what is the value of increasing risk appetite now, for one year, recognizing that decisions are still taken on a country-by-country basis? Does the Board expect only one year of increased risk appetite to produce significantly better outcomes? What program adaptations would not happen if the risk appetite stayed the same? For the five program areas where risk levels will be maintained but timelines will be extended, will there be enough time and ‘space’ to achieve results? Extending the period in which risk appetite remains high only works to achieve results if the innovations/adaptations are either low-risk or there is enough headroom in the risk ceiling to implement risky or unproven adaptations.

The examples highlighted in the paper discuss the decision-making process in Geneva and at a high level, but many of the risks will be calibrated at a local level. How will risk appetite be communicated to and overseen by local PR managers and how will GF staff monitor risks on the ground? Is the Board confident that an additional $17 million per annum in funding for new and additional assurances is adequate? How will this be allocated to countries and what additional activities are covered in this amount? Given the $3.5 billion in C19RM funding for non-standard Global Fund programming, and presumably tens of millions in grant funding going to riskier programming, how was the funding level for additional assurance determined, and is it an appropriate level?

These stakeholders requested the decision point be amended to include: ‘that the Board will receive greater reporting on emerging risk trends and the effectiveness and results of the assurance measures, including the additional assurances put in place’. This was duly included as item 1(d) of the Board Decision Point.

Board decision

The decision point is set out in Box 1 below:

Box 1 ― Board Decision Point: GF/B46/DPXX: Amended Risk Appetite Statements

1. The Board:

a. recalls its ultimate responsibility to the Global Fund’s stakeholders for overseeing the implementation of effective risk management;
b. affirms the Strategy Committee’s concurrence with the amended Risk Appetite Statements under such committee’s oversight, as set forth in Annex 1 to GF/SC17/14_Rev2 and pursuant to decision point GF/SC17/DP02;
c. further affirms the Audit and Finance Committee’s concurrence with the amended Risk Appetite Statements under such committee’s oversight, as set forth in Annex 1 to GF/AFC17/02_Rev2 and pursuant to decision point GF/AFC17/DP02; and
d. instructs the Secretariat to provide greater reporting on emerging risk trends and the effectiveness and results of the assurance measures, including the additional assurances put in place.


2. Based upon the recommendation of the Audit and Finance Committee, the Board approves the amended Risk Appetite Statements, including risk appetites, target risk levels and timeframes to achieve target risk, as set forth in Annex 1 to GF/B46/06, acknowledging that the target risk level for each risk shall become the revised risk appetite at the target due date.

3. This decision point and the amended Risk Appetite Statements approved by it shall supersede decision point GF/B39/DP11 (May 2018).


Accordingly, the amendments to certain Risk Appetite Statements, including risk appetites, target risk levels, and timeframes to achieve target risk as described in the table in Annex 1 of the Board document GF/B46/06, based upon the decisions of the Strategy Committee and Audit and Finance Committee, was approved by the Board.#

The Board Documents GF/B46/06, Recommended Updates to Risk Appetite, and GF/B46/19, Semi-Annual Risk Management Report, should be available shortly at

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